WASHINGTON — The federal judge assigned to the upcoming bid-rigging trial against three former UBS Financial Services Inc. bankers has struck down a request to drop all six criminal counts of conspiracy, wire fraud and witness tampering.
Kimba M. Wood, U.S. district judge for the Southern District of New York in Manhattan, also barred from the trial evidence of municipal bond transactions in which the defendants did not break the law, unless such evidence has sufficient relevancy.
The orders followed motions filed by government prosecutors and attorneys representing former UBS managing director Peter Ghavami and former vice presidents Gary Heinz and Michael Welty.
Prosecutors charged the men in 2010 with fraud and conspiracy in connection with the bidding process for municipal bond investment and derivatives contracts. Heinz was also charged with witness tampering.
The trial is slated to start July 30.
U.S. attorneys allege the men defrauded muni bond issuers and the Treasury Department by conspiring with those at other financial firms between 2001 and 2006 to set bids and to determine which financial firms would win contracts.
In motions filed in March, defense attorneys asked the court to dismiss the fraud and conspiracy charges for a variety of reasons, including a claim that the allegations happened outside the statue of limitations. The limitations period for wire fraud and conspiracy to commit wire fraud is five years, but the limit extends to 10 years “if the offense affects a financial institution,” according to court papers.
Government prosecutors contend the 10-year limit applies because the defendants’ conduct exposed financial firms to additional risk and financial losses from lawyers fees and civil settlements.
UBS agreed in 2011 to pay $160 million to globally settle criminal and civil charges over bid-rigging with the Justice Department, Securities and Exchange Commission and other agencies as well as 25 state attorneys general.
Other firms agreed to make payments in similar settlements in 2010 and 2011, including: JPMorgan Chase & Co. for $228 million; Wachovia, now Wells Fargo & Co., for $148 million, and GE Funding Capital Market Services Inc., for $70 million. Banc of America Securities, now Bank of America Merrill Lynch, which had amnesty from criminal charges in return for its cooperation in the bid-rigging investigations, settled civil charges for $137 million. The firms did not admit or deny wrongdoing.
Lawyers for Ghavami, Heinz and Welty argued the 10-year statute of limitations should not apply because the negative effect on the firms were outweighed by any benefits the firms received as a result of the illegal conduct.
Although relevant court papers were filed under seal and are unavailable, Wood’s order said defense lawyers also argued that settlements and non-prosecution agreements cannot establish effects “because financial institutions settle civil claims and criminal charges for a variety of reasons, such as purely economic considerations or the desire to avoid negative publicity.”
Wood disagreed in her July 13 order.
“Limiting the statute’s reach to cases in which financial institutions suffered a net loss would perversely incentivize financial institutions to participate in frauds in which they expect to earn net benefit, which is behavior that the statute seeks to discourage,” she wrote. “Whether an offense affected a financial institution is a question of fact for a jury to decide.”
Last week, Wood also ruled on a request by U.S. attorneys to bar from trial evidence not related to 38 transactions that prosecutors say prove their allegations.
U.S. attorneys had argued in July that evidence of so-called “uncharged transactions” — instances in which the defendants did not break the law — would be irrelevant and could confuse the jury.
Defense lawyers accused prosecutors of trying to ensure jurors hear only about “38 cherry-picked transactions,” according to court papers. They said the bankers conducted hundreds of other transactions over the years, which can show there was no pattern of corruption.
Although Wood granted the government’s motion, she excluded evidence that the court decides is sufficiently relevant. “The court will review, pretrial, any evidence related to uncharged transactions that defendants seek to introduce at trial,” she wrote.
In her decision Wood referenced a December 2011 decision by U.S. District Judge Victor Marrero, who oversaw the bid-rigging case against CDR Financial Services, CDR founder David Rubin, CFO Zevi Wolmark and vice president Evan Andrew Zarefsky.
Marrero ruled that defense lawyers could use evidence of uncharged transactions to counter claims by prosecutors that the defendants possessed intent.
However, he said lawyers could not present such evidence if it confuses the jury, prejudices prosecutors’ case, or complicates or prolongs the trial. Marrero noted that there may be good reason why Rubin, Wolmark and Zarefsky did not rig every muni bond contract.
“It is plausible that defendants chose not to manipulate each and every transaction ... to avoid rousing suspicion,” he said.
Rubin pleaded guilty on behalf of himself and his firm in December 2011 on counts of wire fraud and conspiracy, and Wolmark and Zarefsky pleaded guilty in January 2012. They are scheduled to be sentenced Dec. 14.
